TrueMark Investments has teamed up with RiverNorth Capital Management to introduce an actively managed ETF investing in pre-merger Special Purpose Acquisition Companies (SPACs).

Michael Loukas, CEO of TrueMark Investments.

The RiverNorth Enhanced Pre-Merger SPAC ETF (SPCZ US) has been listed on NYSE Arca with an expense ratio of 0.89%.

SPACs, also known as blank-cheque companies, are companies with no commercial operations of their own that are established solely to raise capital through an initial public offering (IPO) for the express purpose of acquiring an existing operating company.

A SPAC typically has two years to complete an acquisition or merger or face liquidation. In the intervening period, while a SPAC is searching for a deal, assets are typically invested in US government bonds, money market instruments, and cash, all of which are held in a ring-fenced trust account.

SPAC regulations allow investors to demand their money back before a SPAC’s deal is completed, or once SPAC sponsors run out of time to find a target.

While a SPAC is searching for a target, it may trade somewhat lower than the value of its collateral if sentiment for that SPAC, or in the SPAC market in general, is low. The announcement of a potential deal, however, brings in new investors and speculators, often driving the SPAC’s price well above its NAV.

Investment approach

The ETF invests in pre-merger SPACs that are either seeking a target for a combination or have not yet completed a combination with an identified target.

The strategy, which is managed by RiverNorth, may capture the potential discount, equity upside, and interest income of pre-merger SPACs.

Harnessing RiverNorth’s proprietary trading expertise, the fund may opportunistically utilize leverage in a bid to enhance its returns, increasing leverage in SPACs where shares are trading below the value of the trust’s collateral and reducing leverage in SPACs where shares are trading above the trust value.

RiverNorth pays particular attention to the terms and valuation of new issuers compared to the terms and conditions of deals already trading in the secondary market.

The strategy seeks to deliver a positive rate of return regardless of market conditions and is expected to have a low correlation to traditional asset classes.

Mike Loukas, CEO of TrueMark Investments, said: “SPCZ is the first pre-merger SPAC ETF to opportunistically deploy leverage while giving investors access to RiverNorth’s trading strategies and programs that seek to derive value from buying and selling SPAC securities.”

Patrick Galley, CEO and CIO of RiverNorth Capital Management, added: “RiverNorth has deep experience running SPAC strategies and we recognize that the value of a SPAC is often before it goes through a merger with a private business, the so-called de-SPAC transaction. We are excited to bring this active strategy to market in a liquid ETF format.”